Internet Sales Tax May Be an 'Early Christmas' for Retailers

Just when you thought showrooming was here to stay, the Senate throws brick-and-mortar retailers a lifeline.

For many physical retailers including Best Buy, a national Internet sales tax may signal the early arrival of Christmas. The potential collapse of the pricing advantage for online-only retailers may help brick-and-mortar models avoid a Circuit City fate. It is also good news for consumers, from a competitive stand point, and for states who will now collect much-needed incremental sales tax.

With yesterday's Senate vote of 69 to 27, passing the Internet sales tax, retailers are one step closer to a level pricing playing field. Now the bill moves on to the House of Representatives, where there will likely be more push back. Some view the bill as an incremental tax on the consumer, despite the fact that consumers are supposed to self-declare Internet purchases on their tax returns.

Not surprisingly, the bill has the full support of many brick-and-mortar retailers including Best Buy, Target, Wal-Mart and Barnes & Noble to name a few. The traditional retailers are required to charge tax online because they have a physical presence in most states.

The tax-pricing premium has put brick-and-mortar players at a distinct disadvantage for years and no doubt it has contributed to the showrooming effect. Under the current rules, the consumer has been able to touch, feel and research in stores and then go online to avoid tax. For many retailers already struggling with commoditized products and declining margins (think, Best Buy), a level pricing playing field could make the difference in getting consumers to swipe their credit cards back in the physical world. It is about time.

It is not just brick-and-mortar retailers that support the bill—Amazon is on board as well. While one could argue the success of Amazon is largely due to tax avoidance, the 800-pound gorilla is looking to expand distribution in order to fulfill orders as quickly as same day. That requires yes, a physical distribution center, which triggers sales tax.

Until now, Amazon has been in a state-by-state battle. A national bill would take the decision-making progress out of state hands and avoid the wrestling matches Connecticut and Texas experienced, among others.

If taxes are the key to leveling the playing field, retailers say, "Bring them on."

Stacey Widlitz is the president of SW Retail Advisors. She has worked at UBS, SG Cowen, Fulcrum Partners, and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered retail and home video for five years. Follow her on Twitter @StaceyRetail.